Reservations now cover what percentage of Canada
Exploding wood prices lure you to get started: What you need to know now
The corona pandemic has intensified some developments and triggered trends. Many people have dedicated themselves to their own four walls due to restricted freedom of movement and sometimes months of lockdown. It was renovated as much as it could - and also rebuilt. Last Friday, for example, in the United States, the new build sales in March surprised. The analysts of the Landesbank Baden-Württemberg had expected an increase to 875,000 units. However, more than a million have been sold.
As high as never before
The surge in interest in the expansion and construction of new houses during the pandemic has meant that the price of construction timber has skyrocketed. On Tuesday, the prices on the Chicago Mercantile Exchange (CME), one of the most important commodity exchanges in the world, reached an all-time high. $ 1,445 was asked for 1,000 board feet (May contract). A board foot is the unit of measurement commonly used in North America for the volume of a board, which is approximately 30 cm long, 30 cm wide and 2.5 cm thick. A year ago, the price was roughly the 20-year average at $ 325. It has more than quadrupled within twelve months.
In addition to the high demand, there is also a shortage of supply. In the Canadian province of British Columbia, which is an important supplier of wood, massive damage has been caused by pest infestation: the mountain pine beetle has destroyed a forest area four times the size of Switzerland. As a result, the Canadian timber stores have emptied significantly.
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The construction boom in the USA and the pest infestation in Canada have long had an impact on the European market. Last year Germany exported 55 percent more wood to the USA than in 2019. Scandinavia is also busy delivering overseas.
Shortage in Germany
The high exports are also causing rising prices and bottlenecks in this country. Do-it-yourselfers feel this, but especially woodworking companies. Lumber is now becoming scarce, reports, for example, the Lower Saxony State Association of the Wood Processing Industry according to the North German Broadcasting Corporation. Price increases between 100 and 300 percent for rafters, beams and boards within a few months are not uncommon, according to the carpenters' guild.
Number of price drivers
The strong construction activity is likely to continue for the time being and boost prices. There are also other factors that are likely to drive up the demand for wood. The need for packaging materials based on paper is increasing. On the one hand, the boom in online trading means that more cardboard boxes and filling materials are required. On the other hand, the fight against plastic waste is moving into focus.
In addition, wood is used as a raw material in a number of applications. Because it grows back, its importance increases in a world in which sustainable management is more and more the focus. It is used in the clothing industry to produce viscose and other new types of textile fibers. Wood is also used as the basis for biofuels.
In order to promote the energy transition, heating systems that burn wood are also becoming more widespread. According to industry information, the number of systems in Germany that are fired with wood pellets rose by almost 200 percent compared to the previous year.
Opportunities for Investors
There are a number of reasons for persistently high wood prices. Investors can approach the topic in a number of ways. The greatest risk diversification can be achieved with funds. The Pictet Timber is a veteran in this area (see investor information). Those who want to select specific stocks and are more willing to take risks can buy shares in a timber company - for example the papers of the Finnish forest company and paper manufacturer Stora Enso. A bet on the price of lumber, on the other hand, is not easily possible in this country.
The Pictet Timber celebrates its 13th birthday in autumn. This makes it the classic among equity funds on the topic of wood. The product invests in 40 to 60 companies worldwide and covers the entire value chain. This includes owners of forest areas as well as corporations that manufacture or sell products from and with wood. The largest positions are currently the US companies Rayonier and Weyerhaeuser, which own forests in North America.
In terms of production capacity, the Finnish group is the second largest forest company in the world and one of the largest paper manufacturers. Stora Enso sees its future in packaging, wood construction and biomaterials. But the Finns are still committed to the paper business, which is suffering from increasing digitalization. Should they part with this division, a positive revaluation of the share is likely.
Target price: 20.00 euros
Stop rate: 12.00 euros
Stock recommendations for Rayonier Inc REIT
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